SBC Brings Back Traditional Pension
SBC Communications Inc. is bringing back a traditional pension plan for 55,000 management employees -- a move that industry experts call virtually unprecedented.
Traditional pensions, which promise to pay retirees fixed monthly benefits for life, have been on the wane for the last decade as hundreds of companies have moved to “hybrid” plans that work more like 401(k) programs.
The new retirement plans, including “cash-balance” and “pension equity” programs, are cheaper and more predictable for employers because they contribute the same amount each year. Employees are entitled to proceeds of money invested on their behalf but receive a benefit at retirement that can vary depending on market conditions.
San Antonio-based SBC, a telecommunications giant formed through the mergers of several regional phone companies including California-based Pacific Telesis Group, said Tuesday that it opted to bring back the traditional pension to reward long-term employees, including 15,000 managers in California.
“We want to reward those who stay with us a long time,” SBC spokeswoman Anne Vincent said.
Cash-balance plans have been highly controversial, sparking dozens of class-action lawsuits across the country, including one against IBM Corp.
The pension change will give many SBC managers what they had before SBC went on a buying spree that made it the dominant local phone company in California and 12 other states.
The managers at three of the acquired companies, including Pacific Telesis, were on hybrid plans. SBC moved all managers to a hybrid plan in 2001, Vincent said. Under that plan, she said, employees could choose either the cash-balance or the defined-benefit package, whichever was more valuable to them when they retired.
But the cash-balance system, which allows employees to see their accrued lump-sum pension benefit and take it with them if they switch jobs, tended to favor fully vested employees who quit or retired early, she said. Defined-benefit plans tend to favor employees who stay with the company until normal retirement age.
SBC will freeze the company’s cash-balance and pension equity plans for managers, putting all new pension contributions into a traditional defined-benefit plan, Vincent said. The move does not affect about 100,000 union-represented workers, who already have traditional pension benefits, said Candice Johnson, a spokeswoman for the Communications Workers of America.
SBC employs about 163,000 workers, including 44,600 in California.
Although SBC emphasized that its move was driven by conditions specific to the company and is not necessarily a precedent setter, industry experts said SBC’s decision might signal a turning of the tide.
“This could be the beginning of a trend if Congress resolves some issues around pension funding reform,” said Lynn Dudley, vice president and general counsel at the American Benefits Council in Washington.
Among companies that have switched to cash-balance plans, Dudley said she was beginning to hear whispers about changing back.
The reason: With about 77 million baby boomers on the edge of retirement, America probably will be in the throes of a labor shortage in the next 10 to 20 years, she said. Defined-benefit plans may be one way that companies can urge long-service workers to stay.
The one caveat: Current laws make it difficult to know what a traditional pension will cost from one year to the next. That makes it tougher for companies to offer them, she said.
But Congress has been working on several bills aimed at fixing that problem, and Dudley said she was hopeful that the traditional plan would make a comeback.
